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Why do people let their long-term care policies lapse?

We’ve previously discussed the many benefits of having a long-term care insurance policy to help cover the ever-increasing costs of nursing home, assisted living and in-home care that many people require in their later years. Approximately 70% of people who live to 65 and older will need long-term care.

Although a LTC policy doesn’t make financial sense for everyone, if you’ve been paying the premiums for years, why stop and forfeit the insurance shortly before you reach the age where you’re most likely to need the care it covers? According to a study by Boston College’s Center for Retirement Research, many people do let their policy lapse. Almost a quarter of those people studied who stopped paying their premiums did so just a few years before they needed the very care the insurance would help cover.

Researchers found that more women (38 percent) were likely to let their policy lapse than men (32 percent). The two key reasons were financial hardship that made the cost of the policy prohibitive and cognitive impairment. Those in the second category forgot why they felt they needed the insurance. The study found a few people who reassessed their situation and determined that they didn’t need the insurance after all.

Fewer policies are lapsing now than in the past. It’s possible that this is due to provisions that help protect against unintentional lapses. One is a third-party notification provision where the insured person can designate someone else, such as a family member, to be notified if a policy is in danger of lapsing due to non-payment of premiums. Another is an impairment reinstatement provision. This allows a policy to be reinstated after a lapse if a person can present proof that he or she was impaired at the time of the lapse.

As noted, these policies aren’t financially prudent for everyone. It’s important to give the decision to get a LTC policy serious thought. If you have one, though, and want to help ensure that you don’t lose your coverage before you need it, you may want to talk with an adult child or other trusted family member about taking responsibility for making sure that the payments are kept up should you be unable to do so.